“Business failures are commonly quoted, are closely watched, but are under-analyzed. They are a clearly visible indicator of economic activity, but the relationship of business failures to economic developments is not well understood” (Lane & Schary, 1991).
Business failures are quite common in the economic world. Since the beginning, there are very many cases of failures. It has a long history. Even in modern times, despite tremendous development of management and technology, business failures are quite frequent. There have been umpteen numbers of studies to understand the causes of such failures. Failure is no unusual thing to happen indeed. But cases of sudden demise are of our concern. For example, the demise of Enron and Arthur Andersen rocked the global financial system but were not the last to do so, just a few years later the fifth-largest investment bank in the world, Lehman Brothers Holdings Incorporated filed for the largest ever bankruptcy in the history of the United States in 2008 (Fernando, May, & Megginson, 2012). The focus remains on such failure that leaves a huge impact on the economy and society. Such cases of the sudden death of large organizations as witnessed in recent times have raised a number of unpalatable questions: How and why highly sound enterprises with enormous physical resources at disposal do fall like a house of cards? What actually ailed such enterprises? Who will bear the burden of such failures that pose a profound shock to the national and international economy? How should such a situation be avoided and/or prevented? What are the critical dimensions behind a business failure? There is a need to find serious answers to too many a question. It can hardly be overemphasized that the consequences of such failures have been damaging and at times even fatal, let alone the fact that it has been a colossal waste of energy and resources. And that triggers attempts to understand and analyze the cases of business failures for obvious reasons that such events shatter the stakeholders of all kinds and vitiate the business environment too.
The general know-how of a business can be mastered, but the identification of the causes of uncertainties and risks is essential to reduce the probability of failure in the future. However, now, the concern over sustainability is higher and more significant than ever. In addition, failing to integrate sustainability as an internal part of organization strategies and mismanaging these sustainability issues can significantly affect the image of an organization and thus disturbing its financial performance. Where we are confronting the vital issues involving sustainability, business failure needs more in-depth investigations to ensure that the process of achieving sustainable development goals does not get hindered. Thus, it has become imperative to study the reasons for failure and develop broad-based recommendations to provide inputs to the research process of devising business sustainability. This study attempts to capture the business dynamics of the external and internal environment that leads to failure. The present study follows a three-step analysis procedure.
At first, it seeks to review the documented research encircling the phenomenon of ‘business failure’ with an interpretive perspective on a multidisciplinary basis. The scientific literature allied with the study of business failure diverges into several multiple disciplines that include management, finance, accounting, economics, and social sciences. It is interesting to note that the literature available, although might not be that conclusive in character, is no little. Starting from the 1930s, a lot of research work has been done to identify and analyze such incidents. However, no chronological work has yet been done, which we argue is utterly necessary to understand the pathology of these fiascos. With this in mind, we have attempted to do a comprehensive literature review on the subject, as exhaustive and chronological as possible. Our objective is undoubtedly not to miss any of the significant works in the area.
Second, it utilizes case studies for critically analyzing the factors associated with an organizational collapse. As case studies of business and corporate failure accumulate over time, ways of summarizing these findings and bringing them to the attention of stakeholders, including top management and policymakers, become more necessary. In abridged form, these findings might, for example, tell us new things about different trends in the corporate world. A comprehensive analysis of the case studies will reveal how a business may fail because of the acts of its stakeholders and/or unforeseen external business and political environment.
Third, it identifies the new set of variables responsible for an organization's failure in addition to what has already been found out and analyze things in the context of emerging sustainability issues in business. It suggests a new and better model for predicting business failure risk while considering financial, environmental, social and governance issues in a single framework.
Finally, two opinion surveys were conducted with the Insolvency professionals and stakeholders of the organizations (those included in the analysis for developing the integrated bankruptcy prediction model) respectively. The results from these surveys were statistically analyzed for providing a comparative perspective of the analysis vis-à-vis stakeholder’s perception.
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